Dollar Halts Two-Day Drop Before Fed Minutes; Lira Falls
Washington (Oct 8) The dollar halted a two-day drop versus the euro before the Federal Reserve releases minutes of its most recent meeting as investors weighed the timing of the first interest-rate increase since 2006.
The greenback pared a 0.4 percent advance against the common currency. Russia’s ruble declined as data showed the central bank sold $420 million of foreign currency in its third day of interventions this month. Turkey’s lira weakened as the region’s Kurds protested the government’s limited response to Islamic State militants. Australia’s dollar fell after the statistics bureau said it will drop the widely watched seasonally adjusted employment figure.
“The minutes are very much in focus,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “If we hadn’t had the selloff in the dollar in past few days we’d be a bit cautious but because we had that selloff they could provide a bit of a catalyst. Risk-reward favors being long dollar going into the minutes,” Sneyd said, referring to bets on a stronger U.S. currency.
The greenback was little changed at $1.2660 per euro as of 6:56 a.m. New York time after sliding 1.2 percent in the previous two sessions. It appreciated to $1.2501 on Oct. 3, the strongest level since August 2012. The dollar strengthened 0.2 percent to 108.29 yen. The Japanese currency weakened 0.2 percent to 137.13 yen per euro.
Bond Purchases
The Fed, which next meets on Oct. 28-29, is on track to end a program of stimulatory bond purchases this month. Futures trading showed about a 67 percent likelihood that the central bank will increase borrowing costs to 0.5 percent or higher next September.
Forecasts for the Fed to raise interest rates in mid-2015 are “reasonable” as policy makers wait for unemployment to fall further and inflation to rise, New York Fed President William C. Dudley said yesterday.
The target rate has been maintained in a range of zero to 0.25 percent since December 2008 to support the economy.
“If the Fed minutes today show discussions about specific timing of their interest-rate increase, that would boost the likelihood that the next policy statement will alter the wording around keeping borrowing costs low for an extended period,” said Junichi Ishikawa, an analyst at IG Markets in Tokyo. “That will spur dollar buying.”
Russia’s currency slid as data showed the nation’s monetary authority spent funds on Oct. 6 to shore up the ruble. The bank also said it shifted the upper boundary of the currency’s trading band by 5 kopeks yesterday.
Russian Intervention
President Vladimir Putin is under pressure as the U.S. and European Union impose sanctions on the economy and investors pull money out of the country. Bank of Russia will probably need to spend as much as $30 billion by year-end to slow the decline in the currency, which lost 14 percent against the dollar last quarter, according to UralSib Capital.
The ruble dropped for the ninth time in 10 days against a euro-dollar basket, sliding 0.2 percent to 44.7883.
The lira fell as demonstrators fought with police and, in some areas, with members of local Islamist groups, according to Turkish media. The outpouring of anger came as Syrian Kurdish fighters failed to stop Islamic State advancing through the outskirts of Kobani, a mainly Kurdish town that militants besieged three weeks ago.
The lira weakened for a second day, dropping 0.6 percent to 2.2885 versus the dollar.
Source: Bloomberg
